Economic Analysis of Obesity: Market Failure and Government Policies

This report provides an economic analysis of the obesity crisis, framing it as a market failure. It examines how market imperfections and failures impact entrepreneurship, labor markets, and financial products within the context of the food industry. The report further evaluates how government economic policies, including monetary and fiscal measures like taxation and subsidies, shape business strategies and decisions. The analysis considers factors such as employment policies, inflation, and international trade, highlighting their influence on business operations and outcomes. The conclusion emphasizes the need for government intervention to mitigate the crisis and promote healthier lifestyles. The report references various academic journals and books to support its claims.

The obesity crisis as market failure An
analysis of systematic causes and
corrective mechanisms

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
1 Impact of market imperfection and market failure on entrepreneurship activity.....................3
2 Evaluation of the way market failure and imperfection affect financial product and labour...4
3 The way government economic policies can shape business strategy.....................................5
4 Evaluation of the way government policies can shape business decision................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................7

INTRODUCTION
Obesity is one of the most important, serious growing problems across worldwide and it
has doubled and tripled within 10 years. It can be stated that obesity is mainly responsible for 5%
global death thus various steps need to be taken by government and people for better health and
safety of individual. This report includes four main question answer that is the way market
imperfection and market failure can affect entrepreneurship activities, labour and financial
products. It also explained about the way government economic policies can shape business
strategy and decision.
1 Impact of market imperfection and market failure on entrepreneurship activity
Market in which sellers and buyers can affect production and prices of products or
services due to no disclosure of information and high barriers for entry and exist is known as
imperfect market. Therefore it can be stated that there are less number of buyers and seller and
demand or supply does not have impact on prices rather it is decided by price marker.
Companies compete with each other in order to gain maximum market share to earn more
profitability and sales volume (Karnani, McFerran and Mukhopadhyay, 2016). Such as Most of
the people are not informed about various ingredients that are used in manufacturing of products
and services. Attractive marketing of harmful or high calories soft drink influence children to
intake that result in poor health. Most of the individual have become addicted to soft drink or
foods that are dense in energy due to their better taste and less expensiveness.
On other hand market failure is a economic situation in which products and services are
distributed unequally or inefficiently in free market. In market failure correct and accurate
decision taken by individual proves to be wrong for whole group. Thus, it is situation in which
quantity demand of products is not equal to quantity supplied that resulted in market failure. For
example: as per case study there are three main cause of obesity that is nutrition and calories
intake, level of exercise and genetic factors (Ertürk, 2016). The case study stated that obesity
mostly occurs due to over eating of nutrition and exercises have only minor effects in weight
loss. Food and beverages are bought and sold in free market across worldwide but it have been
noticed by researcher that several trends has resulted in decline in price of energy dense food on
contrary increase in real prices of more nutrition food. Due to technological development
physical efforts put by human have been reduced thus obesity is mainly caused because of many
rational and utility maximum individual in behaviour. Thus it is market failure as firms by

delivering products as per taste and preference of customers that is tasty, delicious food at lower
rates able to make them happy and satisfied (Martin, 2019). But it has impacted adversely on
whole society or healths of people as it have increased number of people suffering from obesity.
Therefore it can be stated that due to free market Entrepreneur are ready to provide products till
people are ready to pay despite knowing their actual cost or impact of health of individuals.
So, it can be stated that there are two main causes of market failure that is
Asymmetrical information and Externalities. Market power is not cause of failure of market in
food industry as there are various competitors with huge market share. People are provided with
inadequate or complex information and attractive marketing strategies are used to induce
younger generation or children to have unhealthy food which become their addiction.
2 Evaluation of the way market failure and imperfection affect financial product and labour
Labour market refers to demand and supply of labour in particular market that indirectly
impact on cost of production and rise in price of products and services. Due to increase demand
of unhealthy products in food industry more labour is required to delivered services to large
number of people that are living in society (Cacciatore and Ghironi, 2020). Employer in order to
delivered unhealthy food products to customers will hire labour or employees that have specific
knowledge and experienced in making tasty, delicious food. So, demand of labour increased that
has extreme knowledge about the way tasty, delicious food is prepared and delivered to
customers. Thus, most of the companies in order to delivered fatty and unhealthy food at lower
prices to customers pay less wages to employees or labour.
Financial products are also affected by market failure and imperfection in food industry
that resulted in increasing number of cases of obesity. More and more people by seeing
increasing demand of unhealthy food planned to start their own business in food industry to earn
more profitability and market share. So, demand of financial products ultimately increases
because people required capital in order to start and operate business in competitive market
condition (Rognlie, 2016). Financial markets are crucial in growth and development economic
and encourage savers to become investors by providing their excess capital to people that wants
to start business. The main roles of financial market are to determinate prices of funds, helps in
mobilisation of saving and ensure liquidity and saves lot of time, efforts of people as both seller
and buyers can easily meet at particular platform.

3 The way government economic policies can shape business strategy
Monetary policy are made by central government in order to regulates or control movement
of money within economy so that it can be equally distributed to each individual for their better
lifestyles. Government by increasing or decreasing interest rates is able to encourage or resist
smooth flow of money within economy. Fiscal is another policy that is used by government to
enhance economic growth and development as it by using two common tools that is subsidies
and tax is able to reduce or increase demand of products and services. Such as in case of obesity
government have planned to put taxes on unhealthy or fatty food so that people are less willing
or interested to make purchased for satisfaction of needs. On the other hand it has decided to
provide subsidies to healthy and organic food so that it can be available to customers at
reasonable prices for fulfilment of their basic needs (Gbohoui, Lam and Lledo, 2019). Thus
company on basis of government existing policies, plans various strategy that can be used to
attract people to make purchased of products over other for satisfaction of their requirements.
Demand and supply side policy government for effectiveness of supply used two method
that is free market side policies in order to increase level of competition by promoting
privatisation, low taxes rates. Government also interview to overcome market failure in food
industry through investing more in education, transportation or introduce of taxation policies. On
the other hand demand side policies aims to increase aggregate demand of products that is
consumer, government spending, investment and increment in export or import (Eichenbaum,
2019). Such as to increased demand of healthy and organic products government provides
subsidies so that business can delivered organic products at lower rates.
Inflation is a economic situation or condition in which interest rates, price of products and
unemployment rates increased at rapid stage that lead to decreased overall income level of
individuals. Due to inflation people are less likely to spend their money on products that are
available at high cost thus business plan strategy to make optimum utilisation of resources and
delivered best qualitative products at reasonable rates to grow and survive in market.
4 Evaluation of the way government policies can shape business decision
Government economic policies can shape business decisions widely for bringing on stronger
working progression and new end targets within fundamental business expansion parameters
onto which higher focus shall be governed by business managers for stronger profitability
outcomes. The government economic policies, tax rates and business functioning decisions

have strong impact onto wider business framework decisions and to yield onto stronger synergy
of goals through which new reflective quest can be developed for bringing on new decisions.
Below are some of the most important points onto which companies have to analyse and
positively focus for shaping onto new determinants through which there is stronger synergy of
actions inbuilt for longer term ( Bertoni, Martí and Reverte, 2019)
 Employment policies: These are the policies and procedures widely important for
bringing on stronger working progression, new end targets within fundamental business
procedures which are typically focused to bring on decisions how economic policies
and procedures are typically developed by HR policies. Employment policies also
enable to bring on various metrics through which business should move ahead within
businesses and to profoundly impact onto various HR strategies. The company has to
frame wider technical progression among employees working parameters, to yield onto
new utility metrics and for governing wider yields onto various new goals through which
strong business positions can be developed within industry where growth fundamentals
are strongly developed onto wider levels.
 Inflation and price stability factors: The degree with which government is controlling
inflation parameters within economy parameters have strong impact on how business
decisions are framed within businesses and how economy is looking to bring on wider
employment levels. Inflation has been recognised as one of the most fluctuating business
paradigm onto which economic situations are widely focused to bring on stronger
policies through which stable business decisions are developed within various
parameters. Companies have to focus onto how much inflation is influencing business
decisions within various leveraging paradigms which enables to reflect onto wider
yielding positive synergy when stronger steps are taken to keep stable price impact onto
how taxes, licensing relatively of various business aspects within fundamental
functioning (Chen, Dimitrov and Pun, 2019).
 Government economic policies and international trade: The government economic
policies such as tax rates, economic stability and various metrics onto which keen focus
of stability is governed onto wider technical aspects shall be analysed as it enables to
shape business structure dynamically with strong stable business performance. The
business owners have to analyse how the various economic policies are working in

favour for company to develop international trade as it has strong influence onto
functional efficiency paradigms and to yield onto wider technical advancement for new
level synergy of potential development. International trade is widely important for
businesses to focus onto developing new end goals and for factoring growth metrics as
companies businesses have to focus how much is export and import is increasing onto
various paradigms where there is wide technical progression inbuilt, and keen focus is
governed for yielding onto wider profit objectives among various avenues.
CONCLUSION
It can be concluded from above report that obesity is serious problem which is faced by
many individual or most teenager or adult people due to intake of unhealthy food. Therefore,
government intervention can lead to reduce number of obesity cases and better, healthy lifestyles
of people.

REFERENCES
Books and Journals
Bertoni, F., Martí, J. and Reverte, C., 2019. The impact of government-supported participative
loans on the growth of entrepreneurial ventures. Research Policy. 48(1). pp.371-384.
Cacciatore, M. and Ghironi, F., 2020. Trade, unemployment, and monetary policy (No.
w27474). National Bureau of Economic Research.
Chen, J. Y., Dimitrov, S. and Pun, H., 2019. The impact of government subsidy on supply
Chains’ sustainability innovation. Omega. 86. pp.42-58.
Eichenbaum, M. S., 2019. Rethinking fiscal policy in an era of low interest rates. Economic
Policy Group Monetary Authority of Singapore, p.90.
Ertürk, K.A., 2016. Asymmetric power and market failure: Power hazard in exchange (No.
2016-02). Working Paper.
Gbohoui, W., Lam, W. R. and Lledo, V. D., 2019. The great divide: Regional inequality and
fiscal policy. International Monetary Fund.
Karnani, A., McFerran, B. and Mukhopadhyay, A., 2016. The obesity crisis as market failure:
An analysis of systemic causes and corrective mechanisms. Journal of the Association
for Consumer Research, 1(3). pp.445-470.
Martin, S., 2019. Literature Review Article: Market Failure. In Market Failure. Edward Elgar
Publishing Limited.
Rognlie, M., 2016. What lower bound? Monetary policy with negative interest
rates. Unpublished manuscript.